Strategies for Developing China's Software Industry

Mingzhi Li, Ming Gao

Abstract

The software industry is deemed an ideal target for a developing country to integrate into the world information and communications technology (ICT) market. On the one hand the industry is labor intensive, and the developing countries have a large labor surplus; on the other hand, it is a worldwide trend for developed countries to outsource a vast amount of low-end, software-related tasks to the low-cost countries and regions, which fits into some developing countries' caliber nicely. India has often been cited as the role model for a developing country to tap into the world software market for its continuous success in the software export sector. In comparison, China's software industry is still negligible in the world despite its sustained high economic growth rate since the economic reform took off in the late 1970s.This paper aims at examining strategies for developing China's software industry. We use India as a reference because of the similarities of the two countries' stages of economic development and the clear divergence in their ICT structures and development paths. Although the language barrier has often been singled out as the major obstacle for China's software exports, we believe the major reasons for its underdevelopment can be ascribed to the following factors. On the national level, the government attention has been skewed toward the hardware sector in the ICT industry, and there is no clear national vision for the strategic direction for the software industry. On the industry and firm level, software development has been regarded as the art of individual creativity rather than an engineering process. As a result, the importance of quality and standards, the two important critical factors in software development, have been largely neglected. Perhaps an even more fundamental factor lies in the deeply rooted notion that software is an attachment to the hardware and should be a free product. The lack of intellectual property rights protection on the government side also contributes to the low spending on software, which further hinders software firms' incentives to innovate.Extending Heeks's model of strategic positioning for developing country software enterprises, we conclude that rather than following in the footsteps of India to promote export, China should focus on its domestic software services market in the near term and pursue a more balanced development strategy in the long run. Rather than asking the question of whether China can become a major competitor like India in the world software market, we propose that there are rich opportunities for collaboration between China and world software superpowers, including India. Alliances between Chinese and foreign software firms will help both sides gain benefit from becoming cocompetitors in niche markets of mutual benefit. Cooperation with these international firms will also naturally open up foreign markets for the Chinese software firms.